Comparing Economics of Wind Power Alternatives

Replicon Group has been providing company and project valuation services for traditional growth industries as well as for high-tech sectors for more than 10 years. Besides standard free cash flow based valuations, i.e. discounted cash flow (DCF) models, we also possess know how and tools for some special approaches to projects with significant potential combined with uncertainty. Some years ago we put a lot of effort in developing tools for estimating total life cycle costs in street lighting projects. Now we are very excited to announce a further broadening of our sustainable energy sector valuation services in to wind power sector.

Life cycle or lifetime cost of a wind farm consists of a combination of upfront cost, service cost and cost of disposal at the end of the project life cycle. Upfront costs depend on very many things most important probably being the choice of technology. Service cost depends on service frequency as well as time and equipment required for each service procedure.

The cost of energy (COE) of the wind turbine is directly dependent on 1) the power output, i.e. annual energy production (AEP) and 2) the total lifetime costs. AEP of a wind farm depends mostly on chosen generator technology and type of the converter. In addition system reliability is critical for the cost of energy. Main generator technology alternatives for bigger mega watt wind turbines are Doubly Fed Induction (DFIG) and Permanent Magnet Synchronous (PMSG) generators. Third relevant modern generator technology worth mentioning here is Electrically Excited Synchronous Generator EESG.

Wind farm has to be connected to electricity network. Without going in to details PMSG generator with full converter (and also with higher upfront costs) is usually more straightforward to connect to the grid compared to DFIG solution.

In order to make costs from different time periods comparable, one has to convert all costs to their present value. It should be noted that various project cash flows with different uncertainty must be discounted using different discount rates. Guaranteed feed-in tariff is very good news for wind turbine owners and wind farm operators because for the first (up to) 12 years there is practically no risk in the price of sold energy. This certainty makes wind farms much more appealing investment targets for investors. At the same time it is important to remember that e.g. approval processes and choice of technology can cause a lot of uncertainty, if not handled professionally.

Feed-in tariffs are part of the fight against global warming. Sustainable energy, that doesn’t create so called greenhouse gases, is supported by guaranteed selling prices for certain time period in order to bolster investments and technology development of e.g. wind power turbines. By year 2020 EU’s goal is to reduce greenhouse gas emissions by 20 per cent compared to 1990 level. Also the share of sustainable energy production is targeted to be increased to 20 per cent of the overall energy production in the EU. In Finland official target is for 2 500 MW wind power capacity by the year 2020. Finnish feed-in tariff system guarantees fixed selling prices only up to that 2500 MW capacity level. In current situation no wind power technology is competive against e.g. fossil energy production. This situation might change in 10-20 years from now when cost of greenhouse gas emissions increase, resources of fossil fuels decrease, and at the same time wind power technolgy becomes more productive.   

Every wind farm project is unique and has to be carefully analyzed financially and always use independent equipment and solution experts that evaluate suitable technology alternatives. There doesn’t exist any “one-size-fits all” wind power solution, but despite its higher upfront costs, PMSG with gearless direct drive technology can often produce lowest COE due to low down time and related service costs. Also low cut-in wind speed is Important especially in lower IEC wind classes III and IV and minimizing upfront costs without compromising in technology choice and quality.

For further information on Replicon services, please contact:

Petteri Hirvonen,
CEO, Replicon Group +358 50 552 96 33 (direct)
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Jouko Ahvenainen, Senior Partner, +44 7889833165 (direct)
jouko.ahvenainen (at) replicongroup.com

About Replicon

Replicon Group is an independent financial and business adviser for growth companies and growth investors. Replicon provides financing and M&A solutions and related strategic advisory that facilitate business activities, efficiency, and increase profitability of corporations and other organizations. Our special focus areas are Cleantech, Healthcare and Internet based business models.